This editorial first appeared in the Ketchikan Daily News:
This is a message for Alaskans who cannot afford to pay a state income tax.
We might have to. Unless, of course, we act this legislative session, which began Tuesday in Juneau.
Please don’t breathe a sigh of relief because you are about to learn that the income tax isn’t likely this year. It isn’t likely this year.
But, it is a real possibility in 10 years, or less. And, while you’re processing that information, also think about how quickly the past 10 years went by, and ask yourself whether you are in a better financial position today than you were then. Ask yourself what your finances would look like now if the Legislature had imposed an income tax a decade ago. Ask yourself whether you want a state income tax in the near future and how that would help you with your financial planning in years to come.
Keep in mind that a state income tax would be in addition to the existing federal income tax.
The dilemma this session is how to tax the oil industry. If legislators do it right, Alaska’s massive natural resources will continue to be developed to benefit Alaska and the oil companies. (Big oil will do the work; it should get paid for it. And, big oil depends on its workers — usually little guys like the rest of us who are trying to make ends meet for us and our families.)
Our job, as the little guys, is to talk or write to our legislators in enough frequency and numbers as to influence their success in fairly and competitively taxing the oil industry.
The result we’re seeking is to increase flow through the TransAlaska Oil Pipeline, which will result in reversing a declining trend started in 1989. Right now, even with the declining flow, Alaska is doing well financially because the oil price is high. But, if the oil price drops significantly, and it has and could again, Alaska has less oil to sell to make up for the loss. Not only does it have fewer barrels of oil flowing through the pipeline, but that number is decreasing.
Alaska depends on oil for 90 percent of its revenue. If it doesn’t get the revenue from oil, the Legislature likely would impose a state income tax.
We think the Legislature, given a situation without sufficient oil revenue, would have no choice but to impose a state income tax. It is what most states do — 41 of them, to be exact. Two others tax portions of income. Alaska is one of nine that doesn’t tax income currently.
Today that tax isn’t necessary. Alaska is doing well financially. It has $40 billion in the Alaska Permanent Fund, $10 billion in the Constitutional Budget Reserve, $2.5 billion in the Statutory Budget Reserve, surpluses anticipated for fiscal 2012 and a AAA bond rating.
It doesn’t have a statewide sales tax or income tax; Alaskans enjoy annual dividends from the Permanent Fund, and communities receive billions of dollars in state assistance for capital projects. In Ketchikan, we’ve seen millions for advancement of our hydroelectric projects. However, hydro only tops the list. The Ketchikan Shipyard and many other projects were built because of contributions from state coffers.
Others industries, such as fishing, mining and tourism, also are benefiting from oil flow, with no significant threats for increased taxes that might negatively affect businesses and be passed along to customers, i.e. tourists.
Since 1989, when oil flow peaked at 2 million barrels per day through the pipeline, it has decreased to about 650,000 barrels per day in 2011.
To increase the oil flow will require exploration and development into difficult-to-enter areas by oil companies. Alaska’s current tax rate discourages that. It is higher than its closest competitors — Gulf of Mexico, North Dakota and Alberta, Canada. Alaska’s rate of taxes and royalties is 75 percent. Alberta and North Dakota are just under 55 percent, while the Gulf is about 43 percent. On a list showing 24 oil-producing places in the nation and around the world, Alaska is the fourth highest in taxes and royalties.
The decline of industry goes hand-in-hand with economic and job losses. Ketchikan saw that with the timber industry. Industry declines also come about when tax rates deter development.
While Ketchikan isn’t near Alaska’s oilfields, it depends greatly on the oil industry. That industry powers the state, and Ketchikan and other communities depend on the state for support, and benefits from both operating and capital budgets. House Bill 110, which addresses Alaska’s tax relationship with the oil companies, failed to pass the Legislature a year ago. Ketchikan’s Sen. Bert Stedman sought additional information before he felt comfortable endorsing it.
Some of that information has been provided since the session closed. That and additional facts will be considered. But, whichever way and tax level the Legislature chooses, and no doubt HB110 will be revised given additional information, oil tax is its most critical topic this session. As constituents who either reap the benefit or pay the cost of what lawmakers decide, we need to encourage thorough research and a decision that ensures Alaska’s economic well-being well beyond the next decade.
Alaskans don’t want a state income tax.